The Impact of the Particular Characteristics of the Company on Idiosyncratic Risk of Securities Stock Exchanges Evidences from Tehran
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

The Impact of the Particular Characteristics of the Company on Idiosyncratic Risk of Securities Stock Exchanges Evidences from Tehran

Authors
Moien Nikusokhan
Esmaeil Fadaei Nejad
10.22034/jse.2017.11092
Abstract
In this paper, the ability of a number of main explanatory factors of the idiosyncratic risk utilized in the recent literature, including size, book-to-market, turnover, market leverage, earnings per share and institutional ownership in Tehran Stock Exchange during the period 2009–2016 have been investigated. So, to analyse the relationship between characteristics and idiosyncratic risk in a cross-section of securities Fama-MacBeth regression (1973) and for individual securities, Time-Series regression were used. The results of cross-sectional analysis, it is suggested that only firm size and share turnover are useful in investment analysis as indicators of the relative idiosyncratic risk across all securities. On the other hand, in the analysis of the individual securities, the results show that the proportion of securities with a significant relationship between a given characteristic and idiosyncratic risk, is very small. Therefore, a great number of considered characteristics are poor predictors of the future idiosyncratic risk changes in a given security.
Keywords
Characteristics of the Company
Fama-MacBeth regression (1973)
Idiosyncratic Risk
Time-Series regression
  1. دولو، مریم و حمیدی زاده، محمدرضا. (1392). "راهبرد سرمایه‌گذاری مبتنی بر ریسک غیرسیتماتیک و ساختار مالکیت".  فصلنامه مطالعات مدیریت راهبردی، 16، 109-129.
  2. راعی، رضا و پویان فر، احمد. (1390). مدیریت سرمایه‌گذاری پیشرفته، تهران، انتشارات سمت.
    1. Ang, A., Hodrick, RJ., Xing, Y., Zhang, X. (2006). “The cross section of volatility and expected returns”, Journal of Finance, 61, 259-299.
    2. Ang, A., Hodrick, RJ., Xing, Y., Zhang, X. (2009). “High idiosyncratic volatility and low returns: international and further U.S evidence”, Journal of Financial Economics, 91, 1-23.
    3. Bali, TG., Cakici, N., Levy, H. (2008). “A model-independent measure of aggregate of idiosyncratic risk”, Journal of Empirical Finance, 15, 878-896.
    4. Bennett, JA., Sias, RW. (2006). “Why company-specific risk changes over time?”, Financial Analysts Journal, 62, 89-100.
    5. Brandt, MW., Brav, A., Graham, JR., Kumar, A. (2010). “The idiosyncratic volatility puzzle: time trend or speculative episode?”, Review of Financial Studies, 23, 863-899.
    6. Brown, G., Kapadia, N. (2007). “Firm-specific risk and equity market development. Journal of Financial Economics, 84, 358-388.
    7. Campbell, JY., Lettau, M., Malkiel, BG., Xu, Y. (2001). “Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk”, Journal of Finance, 16, 1-43.

10. Cao, X., Xu, Y. (2010). “Long-run Idiosyncratic Volatilities and Cross-sectional Stock Returns”. University of Texas at Dallas, Working Paper.

11. Dennis, P.,  Strickland, D. (2009). “The determinants of idiosyncratic volatility”. University of North Carolina, Working Paper.

12. Ferreira, MA., Laux, PA. (2007). “Corporate Governance, Idiosyncratic Risk and Information Flow”, Journal of Finance, 62, 951-989.

13. Fink, J., Fink, K., He, H. (2010). “Idiosyncratic volatility measures and expected return”. James Madison University, Working Paper.

14. Frieder, L., Jiang, GJ. (2007). “Separating Up from Down: New Evidence on the Idiosyncratic Volatility-Return Relation”. American Finance Association Annual Meeting, 4-6 January, New Orleans

15. Fu, F. (2009). “Idiosyncratic risk and the cross-section of expected stock returns”, Journal of Financial Economics, 91, 24-37.

16. Goetzmann, WN., Kumar, A. (2008). “Equity portfolio diversification”, Review of Finance, 12, 433-463

17. Goyal, A., Santa-Clara, P. (2003). “Idiosyncratic risk matters!”, Journal of Finance, 58, 975-1007.

18. Irvine, PJ., Pontiff, JE. (2009). “Idiosyncratic return volatility, cash flows, and product market competition”, Review of Financial Studies, 22, 1149-1177.

19. Jiang, GJ, Xu, D., Yao, T. (2009). “The information content of idiosyncratic volatility”, Journal of Financial and Quantitative Analysis, 44, 1-28.

20. Liu, B., Di Iorio, A., De Silva, A. (2014). “Do stock fundamentals explain idiosyncratic volatility? Evidence for Australian stock market”, European Financial Management Association (EFMA): Annual Meetings, 25-28 June, Rome 

21. Malkiel, BG., Xu, Y. (2003). “Investigating the behavior of idiosyncratic volatility”, Journal of Business, 76, 613-644.

22. Merton, RC. (1987). “A simple model of capital market equilibrium with incomplete information”, Journal of International Financial Markets, Institutions & Money, 27, 35-46.

23. Pastor, L., Veronesi, P. (2003). “Stock Valuation and Learning about Profitability”, Journal of Finance,58,1749-1789.

24. Vozlyublennaia, N. (2011). “The cross-section of dynamics in idiosyncratic risk”, Journal of Empirical Finance, 18, 461-473.

25. Vozlyublennaia, N. (2013). “Do firm characteristics matter for the dynamics of idiosyncratic risk?”, Journal of International Financial Markets, Institutions & Money, 27, 35-46.

26. Wei, SX., Zhang, C. (2005). “Idiosyncratic risk does not matter: a re-examination of the relationship between average returns and average volatilities”, Journal of Banking and Finance, 29, 603-621.